Question

In: Finance

Lane Industries is considering three independent projects, each of which requires a $2.5 million investment. The...

Lane Industries is considering three independent projects, each of which requires a $2.5 million investment. The estimated internal rate of return (IRR) and cost of capital for these projects are presented here:

Project H (high risk): Cost of capital = 13% IRR = 15%
Project M (medium risk): Cost of capital = 10% IRR = 8%
Project L (low risk): Cost of capital = 8% IRR = 9%

Note that the projects' costs of capital vary because the projects have different levels of risk. The company's optimal capital structure calls for 40% debt and 60% common equity, and it expects to have net income of $3,100,000. If Lane establishes its dividends from the residual dividend model, what will be its payout ratio? Round your answer to 2 decimal places.

Solutions

Expert Solution


Related Solutions

Lane Industries is considering three independent projects, each of which requires a $2.5 million investment. The...
Lane Industries is considering three independent projects, each of which requires a $2.5 million investment. The estimated internal rate of return (IRR) and cost of capital for these projects are presented here: Project H (high risk): Cost of capital = 15% IRR = 17% Project M (medium risk): Cost of capital = 10% IRR = 8% Project L (low risk): Cost of capital = 7% IRR = 8% Note that the projects' costs of capital vary because the projects have...
Lane Industries is considering three independent projects, each of which requires a $2.5 million investment. The...
Lane Industries is considering three independent projects, each of which requires a $2.5 million investment. The estimated internal rate of return (IRR) and cost of capital for these projects are presented here: Project H (high risk): Cost of capital = 13% IRR = 15% Project M (medium risk): Cost of capital = 10% IRR = 8% Project L (low risk): Cost of capital = 8% IRR = 9% Note that the projects' costs of capital vary because the projects have...
Walsh Company is considering three independent projects, each of which requires a $6 million investment. The...
Walsh Company is considering three independent projects, each of which requires a $6 million investment. The estimated internal rate of return (IRR) and cost of capital for these projects are presented below: Project H (High risk): Cost of capital = 16% IRR = 21% Project M (Medium risk): Cost of capital = 14% IRR = 11% Project L (Low risk): Cost of capital = 7% IRR = 9% Note that the projects' costs of capital vary because the projects have...
Your division is considering 2 investment projects, each which requires an upfront expenditure of $25 million....
Your division is considering 2 investment projects, each which requires an upfront expenditure of $25 million. You estimate the cost of capital is 10% and that the investments will produce the following after-tax cash flows (in millions of dollars). Year Project A Project B 0 -$25 -$25 1 $5 $20 2 $10 $10 3 $15 $8 4 $20 $6 a) What is the regular payback period for each of these projects? b) What is the discounted payback period for each...
Your firm is considering two investment projects, each of which requires an upfront expenditure of $48...
Your firm is considering two investment projects, each of which requires an upfront expenditure of $48 million. You estimate that the cost of capital is 10% and that the investments will produce the following after-tax cash flows (in millions of dollars): Year COVID Vaccine Face Mask Machine 1 5 23 2 10 20 3 15 10 4 20 8 5 25 6 a. What is the IRR for the Face Mask Machine project? Do not write ‘%’ in your answer....
Payback, NPV, and MIRR Your division is considering two investment projects, each of which requires an...
Payback, NPV, and MIRR Your division is considering two investment projects, each of which requires an up-front expenditure of $24 million. You estimate that the cost of capital is 9% and that the investments will produce the following after-tax cash flows (in millions of dollars): Year Project A Project B 1 5 20 2 10 10 3 15 8 4 20 6 What is the regular payback period for each of the projects? Round your answers to two decimal places....
Payback, NPV, and MIRR Your division is considering two investment projects, each of which requires an...
Payback, NPV, and MIRR Your division is considering two investment projects, each of which requires an up-front expenditure of $22 million. You estimate that the cost of capital is 10% and that the investments will produce the following after-tax cash flows (in millions of dollars): Year Project A Project B 1 5 20 2 10 10 3 15 8 4 20 6 What is the regular payback period for each of the projects? Round your answers to two decimal places....
Payback, NPV, and MIRR Your division is considering two investment projects, each of which requires an...
Payback, NPV, and MIRR Your division is considering two investment projects, each of which requires an up-front expenditure of $23 million. You estimate that the cost of capital is 9% and that the investments will produce the following after-tax cash flows (in millions of dollars): Year Project A Project B 1 5 20 2 10 10 3 15 8 4 20 6 What is the regular payback period for each of the projects? Round your answers to two decimal places....
Your division is considering two investment projects, each of which requires an up-front expenditure of $17...
Your division is considering two investment projects, each of which requires an up-front expenditure of $17 million. You estimate that the investments will produce the following net cash flows: Year Project A Project B 1 $ 5,000,000 $20,000,000 2 10,000,000 10,000,000 3 20,000,000 6,000,000 What are the two projects' net present values, assuming the cost of capital is 5%, 10% and 15%? What are the two projects' IRRs at these same costs of capital?
Your division is considering two investment projects, each of which requires an up-front expenditure of $17...
Your division is considering two investment projects, each of which requires an up-front expenditure of $17 million. You estimate that the investments will produce the following net cash flows: Year Project A Project B 1 $  5,000,000 $20,000,000 2 10,000,000 10,000,000 3 20,000,000 6,000,000 What are the two projects' net present values, assuming the cost of capital is 5%? Do not round intermediate calculations. Round your answers to the nearest dollar. Project A: $   Project B: $   What are the two...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT